A trader creates a long strangle with put options with a strike price of $160 per...

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A trader creates a long strangle with put options with a strike price of $160 per...

A trader creates a long strangle with put options with a strike price of $160 per share, and call options with a strike price of $170 per share by trading a total of 20 option contracts (10 put contracts and 10 call contracts). Each contract is written on 100 shares of stock. The put option is worth $18 per share, and the call option is worth $15 per share.
1. What is the value (payoff) of the strangle at maturity as a function of the then stock price?
2. What is the profit of the strangle at maturity as a function of the then stock price?

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Answer 1

Answer #1

1.
Payoff=(MAX(S-170,0)+MAX(160-S,0))*100
2.
Profit=(MAX(S-170,0)+MAX(160-S,0)-18-15)*100

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Answer 2

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